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There’s a lot of talk about being rich or wealthy. While the terms are used interchangeably, they aren’t the same. Sure, both involve having a lot of money, but how that money works for you and your future is where the real difference comes in.
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Rich vs. Wealthy: What’s the Difference?
Being rich usually means having a high income or a sudden windfall. For example, in 2023, the average personal income in the U.S. was $59,384. But to be in the top 1%, you must make an average annual income of $819,324 a year. That’s rich – but not necessarily wealthy.
Wealth, on the other hand, isn’t just about how much money you make. It’s more about the assets you’ve built up – like investments, real estate or owning a business – that can generate income even if you’re not working. It’s about having enough to cover your lifestyle for the long haul.
According to the 2024 Charles Schwab Modern Wealth Survey, people believe it takes $2.5 million to be considered wealthy in today’s economy.
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Are You Spending or Building?
Rich people often focus on earning a lot of money and spending it on luxury cars, expensive trips and big houses. They can afford a high-end lifestyle, but they’re also often tied to keeping that high income coming in to support it. If their income were to stop, their lifestyle might take a hit.
Wealthy people, on the other hand, focus on building a portfolio of assets that generate income independently. This could be through investments in stocks, bonds, rental properties or businesses. Wealthy individuals aren’t as dependent on their jobs or a single source of income because their assets work for them.
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The Mindset Shift
One big difference is mindset. Being rich is often about living in the moment – earning and spending a lot. There’s less focus on what happens down the road. Wealthy people, however, think long-term. They’re saving, investing and growing their money so they can have financial security for the rest of their lives and possibly for future generations, too.
Time and Compound Interest
Here’s a key factor: time. Wealth isn’t built overnight but over the years, thanks to the power of compound interest. Compound interest is the idea that your money makes money and that money makes more money over time. Someone focusing on being rich may get there quickly, but someone building wealth knows patience pays off.
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Measuring the Difference
Rich people are often measured by their income. Wealthy people, though, are measured by their net worth – how much they own minus how much they owe. A person can earn a huge salary but not wealthy if they have high debt or no savings. Financial independence is a better measure of wealth – can you live comfortably without working because your assets provide enough income? That’s real wealth.
At the end of the day, being rich might get you the finer things in life, but being wealthy is about financial freedom. It’s having the ability to do what you want with your time and money without being tied to a paycheck. So, the real question is: are you just rich or are you building wealth that will last?
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This article Do You Know If You’re Wealthy Or Just ‘Rich’? Here’s The Difference And How Much You Need To Be Both originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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